Kalamazoo Resources Limited 

KZR Details

Submission of New Exploration Licence: Kalamazoo Resources Limited (ASX: KZR) is a producer and explorer of gold and copper projects in Western Australia. As of 9 March 2021, the market capitalisation of the company stood at ~$61.54 million. Recently on 2 March 2021, KZR  lodged a new exploration licence application EL007323 at the Myrtle Gold Project, expanding its exploration tenure in Victoria in the Bendigo Zone ~515 km. 

High-Grade Gold Intersections at Waugh: On 24 February 2021, KZR announced assay results from its first RC drilling program at the Waugh prospect, Ashburton gold project (AGP). The results demonstrated moderate and high-grade gold intersections at KARC0007, KARC0010 and two other holes and show the Waugh pit’s potential along strike. On 1 February 2021, KZR announced DD (diamond drilling) completion at the Lightning Prospect at the Castlemaine gold project in Victoria. The results exhibit high-grade gold potential at the prospect and its nearby area. KZR will conduct extensive testing and review of the results received from the Lightning and Mustang (previously drilled) prospects.

A Look at the December 2020 Result Highlights: At the AGP, KZR undertook the first 5,781 km of drilling in December 2020 near the Waugh and Connie’s Find prospects. The prospects demonstrate thick quartz-and-ironstone units and mineralisation in the present resource. During Q2FY21, KZR granted Novo Resources Corp (NRC) an option for its Queens project. Under the option terms, NRC has given 24k Novo shares to exercise an option in the six months to seek a 50% interest by issuing additional NCR shares to $2 million. During Q2FY21, KZR finished 1,819 km DD at the Lightning prospect at the Castlemaine project. The assay results’ preliminary geological interpretations affirm a “Wattle Gully” analogue structure at the above prospect. At Pilbara projects, the company designed the DD and reverse circulation drilling program at the Sisters project to drill five high priority targets during Q2FY21. 

During the quarter, KZR issued $825k of JMEI tax credits to the eligible shareholders based on its participation in the Government’s Junior Mineral Exploration Incentive (JMEI). KZR incurred an exploration expenditure of $2 million for Q2FY21. It held a cash balance of $7.7 million as of 31 December 2020.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Key Risks: The company faces the risk of exploring gold and copper on its projects, raising sufficient funds for exploration expenditure, and meeting working capital needs, especially since the projects are not generating revenue. Hence, it runs the risk of seeking approvals and clearing regulations as it conducts drilling programs and tests results across projects.   

Outlook: KZR awaits the final drill core assay results at the Lightning prospect and will update it in due course. The company has narrowed on the Satirist and the Wattle Plains zones for the maiden drilling post-grant of final approvals at the Pilbara projects.

Stock Recommendation: The stock of KZR gave a negative return of 20.17% in the past three months and a negative return of 35.91% in the past six months. The stock has a 52-week low and high of $0.255 and $1.00, respectively. The stock of KZR has a support level of ~$0.332 and a resistance level of ~$0.501. On a TTM basis, the stock is trading at a price to book value multiple of ~7.6x, higher than the industry (Metals & Mining) median of ~2.9x, thus seems overvalued. Considering low debt levels, high current ratio, and valuation on a TTM basis, we believe most of the company’s positives have been factored at the current trading level. Hence, we give an ‘Expensive’ rating on the stock at the current market price of $0.455, down by 3.192% on 9^th March 2021.

KZR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Carawine Resources Limited

CWX Details

Results Received from the Jamieson Project: Carawine Resources Limited (ASX: CWX) engages in the exploration, mining and development of gold, base metals, and copper deposits in Australia. As of 9 March 2021, the market capitalisation of the company stood at ~$39.20 million. On 9 March 2021, the company announced assay results from the holes drilled via a diamond drilling program at its Jamieson Project (JP, 100%). The assay results returned intersection at the drilled holes - H8DD023, H8DD024. CWX awaits the results from the deeper drilling at the H8DD025 hole by early April 2021. 

Robust Results Received at the Hercules Prospect: The company declared robust results from the 12 holes drilled at the Hercules prospect from the recent drilling, and its first air core (AC) program finished in January 2021. CWX received the highest grades to date from the drilling result of the TNRC020 hole. The management confirmed the discovery of very high-grade gold and multiple zones at TNRC020. CWX is planning the design of follow-up drilling at the Hercules prospect. 

A Look at the Q2FY21 Results: During the quarter, the company completed an RC (reverse circulation) drilling at 20 holes at the Hercules and Atlantis prospects. It also finished an AC drilling of 80 holes at the Neale and Don King tenements at the Tropicana North Project. The results are awaited from both the drilling programs. CWX completed a DD at three holes at the Jamieson project for 1,557.8 metres at Hill 800, and their assay results are awaited. At the Fraser Range project, CWX has started preparation work for a regional AC drilling work at the gold and nickel-copper targets at its Big Bang tenement (100%). During the quarter, CWX granted sole rights to Black Canyon Pty Limited (BCL) to farm-in to the project post fulfilling conditions set on or before 23 May 2021 for its Oakover Project. Post the fulfilment of conditions specified, BCL will have the right to seek up to a 75% interest in the Oakover Project subject to other conditions. This deal is intended to focus on Jamieson, Tropicana North and Fraser Range Projects while accruing benefits from any discovery at the Oakover Project.

During Q2FY21, CWX completed a placement and raised $6 million (before costs) capital in two tranches. In total, CWX issued ~30 million ordinary shares at 20 cents per share, reflecting a 13.2% discount on the 30-day volume-weighted average price (VWAP) of CWX’s traded shares before the announcement. It has estimated an expenditure of ~$1.5 million for the March 2021 quarter. CWX held a cash reserve of ~$6.4 million as of 31 December 2020.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Key Risks: The company is exposed to the risk of an uncertain economic environment, possible disruption in the supply chain due to COVID-19, changes in the price and demand of base metals and gold and delays in regulatory approval from the authorities. 

Outlook: CWX has completed a diamond drilling (DD) at the RCD006 hole aiming at the Rhyolite Creek prospect, Jamieson project and expects its assay results in late April 2021. Based on the analysis of further assay results, CWX will prioritise additional drilling. Similarly, the company expects further assay results from the drilling undertaken at Atlantis and Tropicana North project in the next few weeks.

Stock Recommendation: The stock of CWX gave a positive return of 96.96% in the past nine months and a positive return of 54.76% in the past 1 year. The stock is currently trading at its 52-weeks’ average price level of $0.125-$0.525. The stock of CWX has a support level of ~$0.302 and a resistance level of ~$0.348. On a TTM basis, the stock is trading at a price to book value multiple of ~4.1x higher than the industry median of ~2.9x, thus seems overvalued. Considering the current trading levels, decent returns in the past 3 months and 6 months, and valuation on a TTM basis, we are of the view that most of the key catalysts of the company have been factored in at the current juncture. Hence, we suggest investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $0.325, down by 9.723% on 9^th March 2021.

CWX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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